The Patient Protection and Affordable Care Act, better known as Obamacare, was passed more than six years ago, and it has completely changed how consumers shop for individual health insurance, as well as how health-benefit providers and physicians tend to patients.
Obamacare's give and take
Some aspects of the law have been quite well received. For starters, Obamacare made the process of shopping for health insurance as transparent as possible. The creation of marketplace exchanges now allows for side-by-side comparisons of similar plans, presumably helping the consumer pick out the plan that best suits their needs for the lowest price. Presenting the plans this way should also spur competition among insurers, further controlling premium inflation.
Even more importantly, Obamacare prohibited health insurers from denying coverage to individuals with pre-existing conditions. Previously, consumers with chronic conditions had few choices when it came to purchasing health insurance.
That said, opening the door for sicker individuals to enter the system also has its drawbacks. Initially, insurers were expected to be hit by adverse selection. In other words, sicker individuals who need health insurance the most were the likeliest to be among the first to enroll. However, over time this adverse selection was expected to give way to healthier individuals who would offset the negative effect of sicker individuals.
Previously, we haven't known whether healthier Americans were enrolling in great enough numbers to mitigate the impact of these more costly enrollees, as the performance of health insurers under Obamacare has been all over the map. Anthem (NYSE:ANTM), the nation's second-largest insurer, has been profitable since nearly day one of Obamacare, while UnitedHealth Group (NYSE:UNH), the nation's largest health insurer, is on pace to lose $1 billion on its Obamacare plans between 2015 and 2016 combined.
But we know now.
Obamacare enrollees are a sicker, costlier bunch
Obamacare enrollees as a whole tend to be sicker and cost more to treat than consumers covered through an employer-based plan, according to a new report released last week by the Blue Cross Blue Shield Association (BCBSA), an insurer that covers around 105 million Americans in the individual and employer-based markets.
BCBSA analyzed the medical claims of 4.7 million individual members and 25 million employer-based group members who were enrolled in BCBS plans in order to get a true look at what costs and challenges Obamacare insurers might be facing.
What BCBSA found was that Obamacare enrollees cost insurers an average of $559 per month through the first nine months of 2015. This was up nearly 12% from the $501 in monthly medical spending per member through the first nine months of 2014. By comparison, spending on clients with employer-based coverage rose a more modest 8% to $457 per month in 2015 from $422 in 2014 over the same nine-month time period. In other words, medical costs for individuals insured through Obamacare are, on average, 22% higher than the costs for individuals insured through employer-based plans.
BCBSA also observed that Obamacare enrollees were more likely to have a number of chronic and expensive-to-treat conditions, including diabetes, depression, heart disease, hepatitis C, hypertension, and HIV.
What this report tells us about Obamacare
On one hand, this makes perfect sense. If consumers with costly-to-treat diseases were shut out of the prior healthcare system, then new Obamacare enrollees, many of which are likely older and/or sicker, should be expected to move the cost needle higher for insurers. Additionally, the data is cherry-picked in a sense, because it highlights the impact these sicker individuals are having since joining Obamacare.
On the other hand, it also raises a valid point about Obamacare: Controlling premium cost inflation isn't going very well.
Insurers participating on the Obamacare exchanges were under the impression, based on estimates from the federal government, that more than 20 million payers would enroll by 2016 and that the risk corridor -- a fund designed to support money-losing insurers that was funded by overly profitable Obamacare insurers -- would be there to protect insurers against exorbitant losses.
In reality, only 12.7 million people have enrolled as of the end of the latest enrollment period, and the risk corridor wound up paying out less than 13% of what money-losing insurers requested. The result is that more than half of Obamacare's approved healthcare cooperatives are now out of business (with perhaps more to follow), and both UnitedHealth Group and Humana could be planning to leave the exchanges altogether by 2017.
For a number of insurers, especially those focused on individual payers and not government-sponsored members, Obamacare is all about survival, and the only way insurers are likely to survive is with steep premium price hikes in 2017 and beyond.
According to the Kaiser Family Foundation, in 2016, the average increase in premiums in the 50 major cities it examined was 10.1%. That might look small compared to the price hikes insurers could make in 2017 and beyond if they can't figure out a way to turn a profit on their Obamacare plans.
To make matters worse, if UnitedHealth, Humana, and a host of other insurers do leave Obamacare's marketplace exchanges, it'll reduce consumer choice and likely solidify the pricing power of the remaining insurers in a number of already low-competition states and cities.
So where does Obamacare go from here? That's the $64,000 question that no one has the answer to.
Chances are that the 2016 presidential elections will have a lot of say in determining what happens next. Of the five remaining presidential candidates, only Democratic Party front-runner Hillary Clinton would keep Obamacare in place and build upon its core strengths. The remaining four candidates would aim to repeal Obamacare and replace it with something entirely different. Once we know who our next president will be, the immediate future of Obamacare should become clearer.
If Obamacare does indeed survive past the 2016 elections, the next big challenge involves walking the fine line of ensuring the sustainability of health-benefit providers without pricing consumers out of health insurance. It's unclear how the more than 12 million enrollees will react to potentially hefty premium increases in 2017 and beyond.
The good news is we won't have to wait too long to find out the answer to either question. Unfortunately, uncertainty continues to be the name of the game for the time being.